A recent Wall Street Journal article pointed out that the recent changes in tax laws governing inherited retirement accounts mean that families should review their financial plans for their children with special needs. The SECURE Act eliminated the ability to “stretch” your taxable distributions. It’s important that parents do not accidentally jeopardize their children’s eligibility for government benefits such as Supplemental Security Income (SSI), Medicaid and other public assistance benefits because of an inheritance.
The SECURE Act (Setting Every Community Up for Retirement Enhancement) went into effect in 2019 and eliminated the ability to “stretch” your taxable distributions over your lifetime. Now, beneficiaries must withdraw the assets from an inherited IRA or 401(k) plan within 10 years after the death of the account holder. There is an exception to the SECURE Act if the beneficiary is disabled or chronically ill as defined under the applicable sections of the Internal Revenue Code.
A special needs trust can allow a child with special needs to enjoy a comfortable quality of life while continuing to receive Social Security and other benefits. The funds in a special needs trust can be used to supplement your child’s government benefits and pay for things that Medicaid does not cover, such as a home, special wheelchairs, handicap-accessible vans or mechanical beds and to pay for a caretaker, vacations and recreational activities.
Illinois State and federal laws allow three different types of special needs trusts, depending on the circumstances:
1. Self-Settled or First-Party Special Needs Trust
A first-party trust is funded with assets owned by the disabled individual who is the beneficiary of the trust and is only for someone under the age of 65.
2. Third-Party Special Needs Trust
A third-party special needs trust is funded by the assets of another person, typically the parents of the beneficiary, who leave them assets in their estate plan.
3. Pooled Trust
In a pooled trust a nonprofit organization serves as the trustee.
A Lombard trust and estates lawyer can assist you to create the right special needs trust for your situation, and protect your family member now and in the future.
Do you have questions about protecting your special needs child in Illinois? Our experienced special needs trust attorneys understand applicable laws and can advise you on the best options to protect your family. Contact the Estate & Probate Legal Group at 630-864-5835.
AREAS WE SERVE: Cook, Dupage, Kane, Lake, and Will counties